Finally, Budget Breathing Room

Approval Of Deficit-cutting Bill Eases Pressure On Lawmakers

If Connecticut's millionaires thought the state budget battle was over, they should think again.

Both the state House of Representatives and the Senate passed a deficit-cutting bill this week without the so-called millionaires' tax to solve the deficit problem for the current fiscal year. But the state is still facing an estimated $700 million to $800 million in fiscal red ink next year.

``I believe the millionaires' tax would clearly be what we're looking at for more revenues,'' House Speaker Moira K. Lyons, D- Stamford, said. ``Paycheck-wise, they can afford a little more. I think there's an equity issue here.''

Because many of the budget cuts would hit the poor, Lyons said the additional taxes should reach the wealthiest citizens as their contribution toward closing the budget gap.

While still looking at the months ahead, Lyons and other lawmakers breathed a major sigh of relief Thursday after the legislature passed a budget-adjustment bill that Republican Gov. John G. Rowland could sign as early as today. If the revenue estimates turn out to be accurate, the deficit would be wiped out completely for the current fiscal year.

That's a major change from the big-deficit, high-tension days that left lawmakers bleary-eyed and exhausted from all-night caucuses and sessions in the last week.

Now, that is over.

``It's a whole new world,'' Lyons said.

With the pressure off, at least temporarily, legislative leaders will be able to turn their attention to other major issues, such as medical malpractice reform and the failure to generate lasting competition after the legislature's highly touted restructuring of the electric industry.

Under the tax-raising, budget-cutting plan, hundreds of thousands of state residents would pay higher income taxes as the 4.5 percent maximum rate is increased to 5 percent. The rate increase would apply to joint filers with an adjusted gross income of more than $44,000, heads of households earning more than $35,000 and single individuals earning more than $22,500.

Based on figures released by lawmakers, joint filers earning $50,000 would pay $34 more a year, while joint filers earning $100,000 would pay $392 more annually.

Single individuals earning $35,000 would pay $102 more a year, while individuals earning $100,000 would pay $450 more annually.

At the upper end of the income scale, couples earning $1.5 million would pay an extra $7,400 annually, and those earning $2.5 million would pay $12,400 more in taxes to the state.

Senate President Pro Tem Kevin B. Sullivan, D- West Hartford, said Thursday that passing the budget this week was a no-brainer because it reduces next year's deficit by half and the second year's deficit by about a third.

``We have avoided the situation of making the deficit worse, and we have actually reduced the gap that has to be filled over the biennium,'' Sullivan said. ``To me, that's what this vote was about. It wasn't about state employees or cities and towns and whether you cared about services for the poor. It was about whether you wanted to live to see another day and not make the problem worse.''

A crucial point is that the state may have avoided a bond-rating downgrade that probably would have occurred if the state borrowed $650 million to cover operating expenses in the current fiscal year.

"If we had not voted this week, within the next three to four months, the treasurer and the comptroller would have run out of cash to pay the state's bills,'' Sullivan said. ``That means the treasurer would have one option and one option only -- set up a line of credit and at the end of the fiscal year turn that into short-term borrowing.''

Once all the taxes are enacted, Sullivan said, the state might actually have a surplus of $700,000 this year -- if the economy and the stock market avoid any further downturns.

The revenue estimates for the increased taxes are generated after a complicated process that involves trying to determine how many cigarettes will be sold, how much will be collected in sales taxes and how the unemployment rate might change in the coming months.

The deficits in recent years occurred in part because many economists did not predict the sharp nosedive and prolonged stagnation of the stock market, which has sharply cut the income taxes paid by wealthy residents with large stock portfolios.